NORWEGIAN LIFE INSURANCE AND PENSION

Transcription

1 NORWEGIAN LIFE INSURANCE AND PENSION Idar Kreutzer Managing director, Finance Norway Future possibilities and challenges

2 2 Welcome to

3 Estland Latvia Romania Tsjekkia Slovakia Bulgaria Litauen Polen Ungarn Finland Slovenia Belgia Norge Italia Hellas Gjennomsnitt Fastlands-Norge Luxembourg Irland Portugal Østerrike Tyskland Frankrike Danmark Spania UK Sverige Nederland Kypros Sveits The Norwegian financial sector More than 2000 companies, employs NOK billion in assets under management Efficient and productive 2% of total employment, 7% of total value creation Spread and versatile structure - but, small Bank Groups. Assets as a percentage of GDP Norwegian banking groups incl. group owned OMF enterprises Sources: Sveriges Riksbank, Finanstilsynet, Statistisk sentralbyrå 3

4 The financial sector s contribution to society Credit makes other sectors more productive Provides risk relief Large employer and taxpayer Highly compentent work force and high level of productivity Norwegian welfare and wage levels require high level of productivity Source: Statistisk sentralbyrå 100,000 80,000 60,000 40,000 20,000 - Value added per hour worked prices Tax payment for some sectors. Sum Mill NOK Finansierings- og forsikringsvirksomhet Fiske, fangst og akvakultur Utenriks sjøfart Bygg og anlegg Industri Varehandel mv. Finansiering og forsikring Utvinnning av råolje og naturgass, inkl. tjenester (høyre akse) Source: Statistisk sentralbyrå

5 The Norwegian pension system Pillar 1: The Public pension system (pay-as-you-go) Pillar 2: Occupational pension schemes (with tax benefit) Pillar 3: Individual pension schemes (with tax benefit) Other individual saving and employer sponsored schemes Pillar 3 Pillar 2 Pillar 1 5

6 % The Public pension system Effects: Old system: - Normal pension level 52-54% New system: - Normal pension level 44% Pillar 1 New elements: All years in work counts Life expectancy divisor Flexible retirement age between 62 and 75 year Old system New system A person need to work 1,8 years longer, to get equal pension level Assumed: The old public pension system: annual salary NOK , a 40 year career. New public pension system: a 40 year career, all years in work counts, 10 % lower income than the best of 20 years in the old system. Withdrawals at age of 67 years. Lower longevity risk Incentives to work longer

7 The Norwegian occupational pension market Pillar 2 Defined contribution (DC) and hybrid pensions Defined benefit (DB) Defined contribution OTP The Public pension system Private sector maximum 70 per cent (net based) OTP The Public pension system Public sector 66 per cent (gross guarantees) The Public pension system Annual guarantees Average interest rate guarantees 3.5 % Average duration of liabilities is years OTP: mandatory minimum level of occupational penions, introduced by law in The OTP requirement may be fullfilled by all types of occupational pension schemes. 7

8 Percent Falling interest rates Lower interest rates Increasing insurance liabilities Norway, Government Benchmarks, 10 Year, Yield Sweden, Government Benchmarks, 10 Year, Yield Denmark, Government Benchmarks, 10 Year, Yield Average guaranteed interest rate in Norwegian insurance companies Source: Finance Norway/Ecowin

9 Life Forventet expectancy gjenstående of a person 60 levetid y.o. ved 60 år -Historical - Historisk development utvikling since siden Projections - Fremskrivning till 2100 til (Statistics 2100 (SSBs Norway, mellomalternativ) medium alternative) Longer life expectancy New mortality tables, K2013 (Dynamic model) Old mortality tables, K1963 (Static model) Men Women Revised mortality tables, K2005 (Static model) Source: Statistics Norway

10 Life expectancy an international comparison List by the World Health Organization (2013) Published,

11 11 New EU requirements

12 Life insurance liabilities 4% 7% Total insurance liabilities 1 st quarter 2015 Public collective pensions 47% 42% Private occupational pensions (incl. union collective pensions) Individual capital insurance Total insurance liabilities NOK billion Privat occupational pensions (incl. union collective pensions) Public collective pensions NOK 489 billion NOK 440 billion 89 per cent of total insurance liabilities Source: Finance Norway 12

13 Private occupational pension schemes - liabilities Pillar 2 NOK billion Q Defined benefit (DB) Defined contribution (DC) Paid-up policies from DBs Pension capital sertificates from DCs Trends Growth in defined contribution pension schemes (DCs) Converting of defined benefit plans (DBs) to defined contribution plans (DCs) Growth in paid-up policies with guarantees Paid-up policies with investment choice Some new hybrid products in pipeline 13

14 Public occupational pension schemes - municipalities Pillar 2 The Norwegian Public Service Pension Fund (Statens Pensjonskasse) is Norway s main provider of public occupational pensions. This is a pay-as-you-go pension scheme and covers the Central government sector, excl. municipalities). In addition, life insurance companies and pension funds provides public pension to municipalities (funded). Public occupational pensions provided by life insurance companies (liabilities). NOK billion Trends Increasing growth in expenses in municipalities pension Q Municipalities (incl. earned-up rights) 14

15 Market development in private sector number of members Pillar 2 NOK billion 1,400 1,200 1, NOK billion 1,400 1,200 1, Defined benefit (DB) Defined contribution (DC) Occupational pension schemes in private sector Capital pension sertificates from DCs Paid-up policies (guaranteed) from DBs Paid-up policies (guaranteed) and capital pension certificates

16 Current situation and challenges Defined benefits and paid-up policies Long-lasting low market interest rate Longevity and principles for building reserves Current regulation of paid-up policies particularly demanding Use of transitional rules in Omnibus II on Norwegian paid-up policies will somewhat ease the situation The annual guaranteed interest rate still implies a high risk of managing paid-up policies, and regulations need to be changed to get a sustainable system. The introduction of Solvency II entails a need for 4-5 times more capital, and requires a softening of the annual guarantee requirements. Non-existing competition is a result

17 Current issues Holders of paid-up policies with an interest rate guarantee may convert to investetment choice Voluntary for holders and do not fit all holders Contracts need to be fully reserved before converting (need equity contributions) In addition, the regulations of paid-up policies with guarantees need to be changed Paid-up policies can not expect to give excess return And will lose value compared to development in wages and inflation

18 Individual pension schemes Pillar 3 NOK thousand 9,000,000 Premiums 8,000,000 7,000,000 6,000,000 5,000,000 A new law of individual pension schemes (IPS) was introduced in ,000,000 3,000,000 2,000,000 The old system with individual pension agreements (IPA) ceased 1,000, ,013 2, Source: Finance Norway

19 Spurce: Folketrygdfondet, 2014

20 Government Pension Fund Global The Government Pension Fund Global is saving for future generations in Norway The fund's market value (June 1 st 2015): NOK billion The budgetary rule 4% of the fund value can be used in the national budget billion kroner was transferred to the national budget in

21